At its May 20, 2010, Open Meeting, the Federal Communications Commission (FCC) adopted an Order and Further Notice of Proposed Rulemaking (Order/FNPRM) to ensure nondiscriminatory, just, and reasonable rates, terms and conditions for access to investor-owned utility poles in the 30 states where such attachments are regulated by the FCC.

In its 94-page Order/FNPRM, the FCC adopts two new requirements relating to pole access and construction practices and proposes a host of new rules governing rates, terms and conditions of pole access to encourage broadband deployment and competition consistent with recommendations made in the National Broadband Plan (“Plan”). (Please see our previous advisory, “National Broadband Plan: Focus on Infrastructure Deployment—Poles, Conduits and Rights of Way.”)

In the Order/FNPRM, the FCC:

  • Proposes to lower the telecommunications pole rent formula to establish more uniform rates applicable to “all” attachers;
  • Adopts general rules of nondiscrimination in attachment practices, and proposes to create timelines to govern every step of the pole attachment process, with the right to use contractors if timelines are not met, regulated make-ready charges, and penalties if access is improperly delayed or denied;
  • Proposes additional pole access rules that could make pole contract negotiations more difficult and increase penalties for unauthorized attachments; and
  • Proposes to improve the enforcement process at the FCC.

Comments on the FNPRM will be due within 30 days after publication in the Federal Register, with Reply Comments due 60 days after publication. Reconsideration of the Order at the FCC, or a petition for review of the Order in a U.S. Court of Appeals, will be due within 30 or 60 days respectively of publication.

Background

Many of the issues addressed in the Order/FNPRM have been the subject of discussion and extensive comments and ex parte submissions in an existing rulemaking and a related declaratory ruling proceeding. (For complete discussion see Davis Wright Tremaine's Nov. 21, 2007, and Aug. 8, 2009, advisories.) In November 2007, the FCC released a Notice of Proposed Rulemaking (NPRM) addressing pole attachment rental rates, terms and conditions of pole access, and whether incumbent local exchange carriers (ILECs) are entitled to the protections afforded attachers in Section 224 of the Communications Act (“Pole Act”).

As reflected in the Plan and Order/FNPRM, one issue considered in the prior NPRM was whether to create a single “broadband rate” for pole attachments, and if so, whether that broadband rate should be based on the FCC’s “cable” or “telecom” formula, or some other formula. Although not addressed or mentioned in the Order/FNPRM, the FCC has also been considering a separate petition filed by an investor-owned utility seeking to increase the rental rate for cable system pole attachments used to provide voice over Internet protocol (VoIP) services from the cable rate to the telecommunications rate.

The earlier NPRM also asked whether the FCC should adopt specific rules regarding a number of “terms and conditions” affecting pole attachments. Extensive comments and ex partes were filed with significant emphasis placed on the need for timelines for the completion of make-ready, the use of specific construction practices such as “boxing” and “bracketing,” the use of contractors to perform make-ready work, access by wireless attachers and other issues pertaining to the process of obtaining access to utility poles.

Order

The FCC adopted a brief order with two distinct findings.

First, in the Order the Commission clarified that Section 224 allows communications providers to use space- and cost-saving attachment techniques where practical and consistent with a pole owner’s use of those techniques. Thus, where a pole owner employs such pole attachment techniques as boxing (i.e., the installation of facilities on both sales of a pole) and bracketing (i.e., the installation of extension arms to support communications lines), the pole owner generally must allow attachers to use these same techniques, suggesting that these could already be part of the nondiscrimination requirements applicable to all conditions of pole access.

Second, the Commission affirmatively holds that the right to just and reasonable access to poles found in Section 224 includes the right of timely access. Therefore, the Commission holds that make-ready or other pole access delays not warranted by the circumstances are unjust and unreasonable. In the FNPRM, the Commission proposes specific rules to clarify what timely access entails.

FNPRM

The Commission adopted a lengthy FNPRM that proposes new rules and amendments to existing rules across a variety of pole attachment issues, including rental rates, access to poles and the enforcement process.

1. Pole attachment rates

Consistent with the Plan and the existing FCC record, the FNPRM acknowledges that the amount of pole attachment rent plays a significant role in broadband deployment decisions and that broadband deployment and adoption can be encouraged by directly cutting such costs. In addition, the FNPRM recognizes that with the convergence of video, voice and data services over shared networks, charging different rates for similar pole attachments based on regulatory classifications (i.e., cable vs. telecommunications), is outdated and has led to significant litigation and uncertainty, which could deter broadband deployment and investment.

Consequently, the FNPRM proposes that the FCC establish pole attachment rates as low and as close to uniform as possible, in light of statutory limitations. Specifically, the FCC notes that the cable formula “has been in place for 31 years and is ‘just and reasonable’ and fully compensatory to utilities.” While the FCC solicits comments regarding several pole formula proposals previously proposed in prior rulemaking and related proceedings, the principal focus of the FNPRM is on a new telecom rent formula devised by the FCC to accomplish its objectives.

The FCC recognizes that the existing telecommunications formula more than compensates utility pole owners for the incremental cost of accommodating pole attachers by compensating them for the fully distributed costs of the pole. It expressly recognizes legal precedent that establishes that a pole attachment rate that ensures utilities recover their marginal costs provides just compensation, and that incremental pricing can be an appropriate approach to setting regulated rates.

Accordingly, the FCC proposes to amend the telecommunications formula to provide for a range of rates that would be “just and reasonable.” The “upper bound rate” would be the existing telecom rate formula (fully distributed costs) while the “lower bound rate” would follow the same telecom rate formula but exclude capital related operating costs, getting the rate closer to recovery of incremental costs. Specifically, the lower bound telecom rate formula would eliminate operating expenses related to the utility’s pole plant depreciation, rate of return on pole plant investment, and taxes from the annual pole carrying charges, which results in rates that the Commission calculates would be lower than the cable rate.

The proposed rule provides that the pole rent applicable to telecommunications carriers (including cable operators that provide telecommunications services) would be the higher of either the lower bound telecom rate or the cable rate. Thus, in most cases the applicable rate would be the cable rate.

The Commission reasons that this approach is consistent with the express language of Section 224, which does not provide any definition of what “costs” are to be included in the telecom formula. The Commission states that the exclusion of capital costs from pole rents is reasonable because most pole attachments do not impose any additional capital costs on a utility, which are not already recovered in make-ready (pole replacement or rearrangements).

The Commission explains that it has broad ratemaking discretion and that this approach is within the “zone of reasonableness” and any rate in that range (i.e., the cable rate), would be just and reasonable. The Commission seeks comments regarding this proposal and solicits studies regarding its premise that utilities incur minimal capital cost to accommodate new attachers aside from make-ready.

The FNPRM also inquires about whether forbearance from imposing the telecom rate is legally sustainable. However, the Commission does not specifically address the pending cable VoIP rent petition which would be mooted by the adoption of the FCC’s telecom rent proposal.

The Commission does decide that it is not including ILECs under the Section 224 protections, including any rate formula, at this time. Instead it seeks additional comments concerning the impact of ILEC joint use arrangements on broadband deployment and the effect of ILEC’s more beneficial joint use terms and conditions compared to cable and telecom attachers.

2. Improving attachers’ access to poles

Make-ready timeline

The Commission finds that delays in affording attachers access to poles, particularly delays with “make-ready”—i.e., the rearrangement of equipment and attachments in order to make room on either an existing pole or a new pole for a new attacher—can have a significant detrimental impact on broadband deployment. Therefore, the Commission proposes a specific timeline that covers each step of the pole attachment process and is modeled on timelines adopted by several state public utility commissions.

  • Survey: The FCC proposes to retain its current rule that requires pole owners to respond in detail to requests for access to poles within 45 days.
  • Estimate: The FCC proposes to require pole owners to tender an estimate of make-ready charges to attachers within 14 days.
  • Acceptance: The FCC proposes to allow applicants 14 days to accept a tendered estimate of make-ready charges.
  • Performance: The FCC proposes that once applicants have paid estimated make-ready charges, pole owners must complete make-ready work within 45 days.
  • Multiparty coordination: The FCC proposes a period of 30 days for the completion of make-ready work if an existing attacher fails to rearrange its facilities during the 45-day period.

The Commission also solicits comment about possible exceptions to the proposed timeline, such as applications involving a particularly large number of poles. Despite numerous statements by the Commissioners about the importance of prompt wireless deployment, the Commission took a more cautious approach regarding attachment of wireless equipment. While not ruling out the possibility that wireless attachments could be under the same timeline as wireline attachments, the Commission sought further comment on what timelines would be appropriate for attachment of wireless equipment.

Use of outside contractors

The FCC recognizes that attachers frequently seek to use independent contractors to speed the process of performing make-ready and making attachments. As a result, the FCC proposes a series of rules regarding the use of outside contractors to perform (a) survey and make-ready work and (b) the attachment of facilities. Specifically, the FCC proposes to:

  • Permit attachers to use qualified or authorized contractors to perform surveys and make-ready work if a utility has failed to perform within the prescribed timeframe;
  • Permit attachers to ILEC-owned poles to use any qualified contractor for surveys and make-ready;
  • Permit attachers to non-ILEC (typically electric utility) poles to use an authorized contractor for surveys and make-ready;
  • Permit attachers to use a qualified or authorized contractor to attach facilities after make-ready is complete; and
  • Require pole owners to share with attachers a list of authorized contractors and its standards for approval of contractors.

The Commission also proposes a series of rules pertaining to the direction and supervision of outside contractors and for contractors working among electrical lines. These proposed rules generally give electric utility pole owners more authority and control over contractors than ILEC pole owners are afforded.

Make-ready fee proposals

Recognizing that make-ready charges often can be a significant expense and barrier to the deployment of broadband facilities, the Commission proposes several rules to ease the burden.

First, the Commission proposes a rule to allow attachers to pay for make-ready work in stages, rather than in advance, which most pole owners now require. Under the proposed rule, attachers would pay one-half of the estimated make-ready costs in advance, one quarter of the costs midway through performance, and the remainder upon completion.

Second, the FCC proposes to require pole owners to make available to attachers a schedule of common make-ready charges. And finally, for jointly owned utility poles, the FCC proposes to require the owners to designate one owner as the utility managing all third-party attachments.

3. Improving the pole attachment enforcement process

The Plan recommends that the Commission implement institutional changes to its current enforcement procedures including the creation of specialized forums and processes for pole attachment disputes. In the FNPRM, the FCC picks up on these recommendations and proposes a number of changes to its pole attachment regulations to improve the enforcement process. The FCC also asks for comment on various proposals to expedite or improve dispute resolution in different ways, as follows:

Procedures

While not proposing specific rules, the FCC asks for comment on whether the current pole attachment complaint rules are sufficient. The Commission pointed to its telecommunications dispute resolution rules and its cable service complaint procedures and asked whether either model would be preferable to the current pole attachment complaint rules. The FCC also asks whether pole attachment dispute resolution should be outsourced to a private entity, following the model of the 800 MHz Transition Administrator created under the FCC’s auspices to resolve spectrum relocation disputes.

Informal dispute resolution

The FCC asks whether private dispute resolution could be encouraged if the Commission were to publish a set of “best practices” for pole attachment terms and conditions. The Commission also asks if it should follow the lead of the New York Public Service Commission, which has established mandatory pre-complaint negotiation procedures between companies prior to the filing of a complaint. Finally, the FCC proposes elimination of the current rule that requires an attacher to file an FCC complaint within 30 days of a utility’s denial of access. The FCC reasoned that this requirement only served to force litigation prematurely.

Remedies

The FCC proposes certain changes to increase its powers to impose penalties that will serve as a sufficient deterrent to violations. Specifically, the FCC proposes to revise its rules to allow it to award compensatory damages to attachers if a utility denies access or imposes an unreasonable rate, term or condition. The FCC also proposes to clarify its existing authority to explicitly allow it to order refunds as far back in time as permitted by the statute of limitations.

Unauthorized attachments. While making no specific proposals concerning unauthorized pole attachments (including those done without an existing pole attachment agreement generally or specific permit), the FCC states that the current penalty structure of imposing back rent plus interest is not a particularly effective deterrent for attaching parties. The Commission asks for comments on whether the Oregon Public Utility Commission’s financial penalty structure for unauthorized attachments ($100 per pole plus five times the annual pole rent per pole) has been effective and what benefits and shortcomings are associated with those rules.

Sign and sue

The “sign and sue” policy allows an attacher to sign a pole attachment contract without waiving its right to later file an FCC complaint alleging the contract’s terms are unlawful. The Commission proposes to revise the policy to recognize quid pro quo bargaining in pole attachment agreement negotiations and to prevent “cherry picking” where an attacher keeps favorable provisions and challenges those it finds objectionable.

To accomplish this, the FCC proposes to amend its rules to require attachers to provide written notice to a utility of those contract provisions it deems to be unlawful prior to signing an agreement. Only then will sign and sue rights be preserved. To preserve fairness to attachers, the FCC further proposed a distinction between “facial” and “as applied” sign and sue contract provision challenges for purposes of the written notice requirement (the latter would not require prior written notice if the contract term was not facially unlawful).